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Cost of making biodiesel soars beyond affordability – Z Energy

WATCH THE VIDEOS: Z Energy boss Mike Bennetts acknowledges progress on producing biofuels in New Zealand has slowed almost to a halt, despite their critical role in the transition to low-emissions transport

Two challenges are frustrating the chief executive of New Zealand’s biggest fuel retailer, in his drive to transition from petroleum to biofuels.

The first is the ongoing uncertainty about the biofuel mandate, which the Prime Minister signaled when she visited Z’s Wiri biodiesel plant early last year.

“That will start on April 1 of 2023 – so just under 12 months away. All of the rules and regulations around there have not yet been finalised,” Bennetts tells Newsroom Pro Talks subscribers in a full-length webinar interview.

The introduction of a biofuel mandate has been stalled for five years, but he hopes the details will finally be confirmed in the coming month. “That will then provide much needed certainty for the industry to decide, right, how do we want to meet that mandate? Do we want to do that domestically? Or do we want to import products from overseas?”

And the other problem explains why that Wiri production facility, which wasn’t operating when Jacinda Ardern visited last year, remains mothballed to this day.

“The second thing that’s been extremely frustrating for me, personally, is simply the construction costs in New Zealand have gone through the roof,” he says.

When Newsroom and the Prime Minister visited the biofuels plant in January 2021, he says, the company had been just starting a piece of engineering work to expand capacity in anticipation of the biofuels mandate coming into effect.

The engineering team had told him it would cost about $15 million to upgrade the plant to being producing fuels to help feed the market’s mandate biofuels needs – and on that basis, he gave them a green light.

Two months ago, they had updated the price tag because of fast-rising construction costs. “They came to me and said, Mike, it’s going to cost somewhere between $35 million and $45 million to do the work. And I said, well, that’s a lot of money, and we’d have to recover the cost of that from our customers. We need to kind of just wait a bit longer to see exactly what the government’s mandates rules and regulations are.”

The fine print of the biofuels mandate would help Z Energy decide whether to invest in upgrading the Wiri plant. “Frankly, whether we’re better off giving up on using that plant, and simply importing from a plant in Singapore or elsewhere in the Asian region.”

Despite a forecast 38 percent reduction in petrol use over the next eight to 10 years, Bennett says biofuel production here has been slow to ramp up. The other two big fuel retailers, Mobil and BP, haven’t disclosed any plans to make or buy locally made biofuel.

Instead they will import it from overseas producers such as Finland’s Neste, which is also in talks to supply sustainable aviation fuel to Air NZ.

Now it looks like Z Energy may go the same way, relying on imported biofuels to meet the carbon intensity requirements of the Government’s biofuels mandate.

Already, the three big fuel companies, as majority shareholders in the company that owns Marsden Point, have agreed to shut down the refinery there and decommission expensive technology such as its hydrocracker, rather than converting it to biofuel production.

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